Not a Fan of Working? Joining the FIRE Movement May Be for You

(Stefon Walters)

The FIRE movement – which stands for “Financial Independence, Retire Early” – encourages people to intentionally take the financial measures necessary to achieve financial independence at an early age. While most FIRE enthusiasts aim to do so by the age of 40, many do so between the ages of 30 and 50. There is no one-size-fits-all lens in the FIRE movement; it’s about knowing what’s ideal for you.

FIRE also means knowing what financial independence looks like for you. For most practitioners, it gets to the point where they can do whatever they want in life without having to depend on an employer for money.

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How right is it for you?

Telling someone how much they have saved can be tricky because retirement expenses vary based on many different factors. Someone who retires in South Beach, Miami will likely have a higher cost of living than someone who retires in Cleveland, Ohio. Someone who plans to travel the world probably needs more than someone who wants to enjoy retirement while relaxing as much as possible.

If you are not sure how much annual income you will need, a rule of thumb is to have at least 80% of your annual income to maintain your current lifestyle. So, if you currently make $ 80,000, you’re going to want $ 64,000 a year. If you plan to be more frugal, you can lower the percentage and vice versa.

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Once you know your annual goal, you can find your total savings goal using the 4% rule. The 4% rule encourages people to save at least 25 times their ideal annual income. For example, if you would need $ 64,000 a year to live your life the way you want, you would aim to save at least $ 1.6 million.

Reach your goal

The best way to achieve your FIRE goal is to use all available resources and approach it from multiple angles. To begin, you should make a plan to get rid of expensive debt such as credit cards, because that debt will lower your cash flow and potentially offset your investment gains. Paying more interest on debt than you earn from investing is counterproductive.

As for investments, you don’t need huge returns. With discipline and consistency, all you need are low-cost index funds to make sure you don’t overpay for expensive mutual funds that, compared to S&P 500often underperforms in the long run.

The difference in expense ratios (charged as a percentage of the investment value) may not seem like much on the card, but over time, the slightest difference can easily add up to thousands.

It also helps build a solid holding in dividend stocks because that can turn into consistent passive income, especially if you are investing in Dividend Aristocrats, which are companies that have been increasing their annual dividend for at least 25 consecutive years.

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Dividends probably won’t make up the bulk of your income, but they can be a great supplement. For perspective, if you accumulate $ 100,000 in dividend-paying stocks that average 2.5% dividend yield, that’s $ 2,500 more in annual income. Something is better than nothing.

It’s not all work, no play

There are undoubtedly some sacrifices you need to make in the FIRE movement, but it doesn’t have to mean giving up anything that doesn’t get you close to your financial goals. You don’t want to deprive yourself of any satisfaction or pleasure along the way.

Much of what the FIRE movement is about is being very intentional with your spending; when your income comes in, every dollar is accounted for and has a “job”. That job could be investments, bills, charity, entertainment, or whatever you choose.

Allocating every dollar to a job makes you much more aware of your expenses and makes it easier to make sure it’s in line with your values ​​and goals.

It is bigger than retirement

A very important thing to note about the FIRE movement is that the “early retirement” part does not mean that you have to quit your job completely and do nothing. It could very well mean this to you if you wish, but it doesn’t to have to say this.

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The ultimate goal is not just to retire early and never touch a job again; the goal is to retire “into” a lifestyle, job or career that you enjoy. For example, you may have a passion for teaching children but you may not be able to do it as a career because of pay. If you are able to get to the point where money is no longer a factor, you may finally be able to pursue it. FIRE means putting more people in a position to do these things.

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